Interest on Portland "urban renewal" bonds pushing 6.3%
As we discussed the other day, the City of Portland sold a slew of "urban renewal" bonds this week, to be repaid out of property taxes from the amorphous Interstate Corridor "district" in the north and northeast parts of town. The city's busy debt department has sent us the final terms of the bonds, and here's the tale of the tape:
Those 2026 federally taxable bonds are kind of an eye-popper. That's a 15-year loan, and the boys at Bank of America are charging the city 6.293% a year interest on that $11.3 million. Think about it. That's a really crappy rate of interest from the city's perspective. Right now regular Joes can get a 15-year fixed-rate mortgage for under 3.75%. Even taking the jumbo size of the city's loan into account, it's going to pay way more interest on that $11.3 million than it should want to. Yuck.
When they start bragging to you about Portland's wonderful credit rating, you might want to ask them why the city is paying 6.3% for 15-year money when interest rates are at historic lows.
Overall, the new IOUs show a face amount of $46,135,000, and the combined true interest cost of all the bonds is 5.304%. When you multiply those two numbers, you get nearly $2.5 million a year of interest -- the price that the taxpayers will pay for renting money. That's a lot of property taxes being shoveled straight to Wall Street, and doing no good for Interstate Avenue or anywhere else in town.
Whatever marginal good it may be doing in Hipsterland -- and that's debatable -- "urban renewal" isn't worth that high a price. Not even close.
| Posted at 8:46 AM | Permalink |
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Comments (13)
Thanks, once again, for this important and detailed analysis the local media are too timid or math-phobic to report on.
Posted by Eric | August 5, 2011 9:08 AM
Why is it always BoA?
I'd like to know if the development corporation currently dba City of Portland™ has been offering up collateral of some kind to BoA behind closed doors and exactly what it is. After all, what's to stop them?
Posted by Mr. Grumpy | August 5, 2011 9:17 AM
City of Portland> When I grow up I want to be just like our Federal Government- totally bankrupt and a slave to the big banks.
Posted by Ralph Woods | August 5, 2011 9:29 AM
The Portland/TriMet/Metro agenda is hemorraging and has never been more vulnerable.
IMO the current and growing sorties in Vancouver, Clackamas County, Lake Oswego, Damascus & Boring will soon be showing signs of it's imminent demise.
Any and all additional salvos will accelerate it's destruction.
So by all means, folks, pile on!
Posted by Ben | August 5, 2011 9:48 AM
Wall Street, London, Geneva, et al., are eating America alive en masse from the inside and picking up momentum. Makes "Alien" seem like a spa treatment by comparison.
Meanwhile, in DC and state capitols, county and city halls around the country, their political puppets and assembled narcissistic nitwits are having a http://www.youtube.com/watch?v=cbHDtCTYHjE
Posted by Mojo | August 5, 2011 10:05 AM
So is that what pushed us up over the $11,000 per capita mark on your city of Portland debt ticker in the past 24 hours?
If so, my congratulations to our oafish, puffy mayor and his fellow commissioners! This is a milestone that even Vera could not have thought possible. Well done, Mayor Creepy.
Posted by Gen. Ambrose Burnside, Ret. | August 5, 2011 11:53 AM
"Bank of America are charging the city 6.293% a year interest"
To be fair, BofA is just the agent selling to their clients. I think BofA gets paid a % of sales probably.
As far as 6.3% over 15 years, that's just where market rates are right now.
Posted by Steve | August 5, 2011 1:05 PM
Let's see BNY Mellon is charging large customer's interest for parking money in their money market funds. 10Y Treasuries are at 2.6%. And Portland can only get money at a 6.3% rate. That is a HUGE risk premium. Wall street doesn't trust loaning money the kids...
Posted by zonedar | August 5, 2011 1:25 PM
just where market rates are right now
As I say, you can get 15-year money on a house right now for under 3.75%. The city's paying 6.3% because it's on shaky ground financially, and the property tax increment gamble in north Portland is risky.
Posted by Jack Bog | August 5, 2011 3:07 PM
"The city's paying 6.3% because it's on shaky ground financially, and the property tax increment gamble in north Portland is risky."
I don't disagree - It's not 6.3% because of BofA, it's 6.3% because of all the smoke-n-mirrors municipal bond boondoggles.
If you think Sam-n-Randy care about how risky or what kind of debt that'll be in 10 years, fuggeaboutit.
It is risk, because I know someone who re-financed their 50-unit apartment at 4.8%.
Posted by Steve | August 5, 2011 3:55 PM
Anybody who invests in the economic future of Food Cart Nation in NoPo and Alberta must like to take risks, and get rewarded for doing so.
Posted by Jack Bog | August 5, 2011 4:08 PM
You were the one that taught me about pre-payment penalties Jack.
Posted by jay jay mack | August 5, 2011 6:45 PM
With Sam and Randy not up for re-election, and Randy already saying he had no remorse for spending sewer dollars on his pet projects, one can only imagine how they are squeezing out every penny to continue building their empire in the little time they have left. They have nothing to lose and no one to answer to, except maybe the ones who will profit from their actions.
Posted by Teddi Carbonneau | August 7, 2011 10:10 AM